NY Medicare Advantage Organizations to Litigants: We Want Our Money Back!!

It is well settled that Medicare has a statutory right to assert a lien on a recovery in a personal injury action. But what about a private insurer that provides health benefits through a Medicare Advantage plan? According to the Second Department, when the insurer’s agreement with its insured provides for reimbursement, it too may assert a lien.

In Trezza v. Trezza, the plaintiff settled his case for $75,000. Shortly thereafter, Oxford, plaintiff’s insurer, asserted a claim for reimbursement for the amounts it paid in medical expenses. The plaintiff’s plan with Oxford was authorized under Part C of the Medicare Act, which allows private managed health care organizations to provide individuals with Medicare benefits they would be entitled to receive under Part A and Part B of the Medicare Act.

Plaintiff moved to extinguish the lien, arguing that pursuant to General Obligations Law 5-335, Oxford, a private insurer, had no right of reimbursement. GOL 5-335 provides that when a plaintiff settles an action for personal injuries, it shall be conclusively presumed that the settlement does not include any compensation for the cost of health care services. It further provides that except where there is a statutory right of reimbursement, no party entering into such a settlement shall be subject to a subrogation claim and no benefit provider shall have a lien on the proceeds of the settlement. In opposition, Oxford asserted that plaintiff owed the same obligation to a Medicare Advantage organization as he does to Medicare. Thus, federal law preempted GOL 5-335 and gave Oxford a statutory right or reimbursement.

Importantly, plaintiff’s insurance contract with Oxford stated that he gave Oxford the right to recover payments from insurance companies. It further provided that Oxford has provided benefits and a judgment or settlement is made with a no-fault or liability insurer, the plaintiff must reimburse Oxford.

The Supreme Court extinguished Oxford’s lien, finding that the Medicare Act did not create a statutory right of reimbursement for Oxford. Instead, it allowed for HMOs to include subrogation rights in its contract with beneficiaries. And since this would be a matter of state contract law, GOL 5-335 controls and therefore precludes Oxford from asserting a lien.

The Second Department reversed. In the opinion, the Second Department agreed with the Supreme Court that Part C permits, but does not require, Medicare Advantage organizations to create a right of reimbursement for themselves in their insurance agreements with insureds covered under Medicare. That is, there is no statutory right to reimbursement in favor of Medicare Advantage insurers such as Oxford, but they can create a right of reimbursement for themselves in their contracts with insureds. Where the Supreme Court and Second Department differed is whether the Medicare Act preempts 5-335. That is, does GOL 5-335 prohibit Medicare Advantage organizations from exercising their contractual reimbursement rights? Focusing the on the direct language of the Act and implementing procedures, the Second Department held that Federal law preempts State law in this context and that a State cannot take away a Medicare Advantage organization’s right under Federal law.

The lesson here is, when dealing with a Medicare Advantage organization’s lien, obtain a copy of the plaintiff’s insurance agreement with the organization and see if it creates a right of reimbursement. If it does, the lien must be dealt with before the settlement is finalized.

Thanks to Gabriel Darwick for his contribution.

For more information contact Denise Fontana Ricci at dricci@wcmlaw.com.